about to walk (buy and bail) in AZ... couple questions?

[abouttowalkaway]

I have read these forums extensively ... thanks for all your sharing especially AZMeltdown who was our inspiration for going this route.

We are $150,000 upside down on our existing home but fortunately qualified for another.

By bailing, are we changing the tax implications of our existing home's deficiency because it will no longer be considered our primary home at the time of foreclosure? Will be get 1099'd?

I have tried consulting 6 different local lawyers and none of them have had experience enough to provide any real answers .... except to confirm our debt is non-recourse.

Everyone I have talked to has suggested for us to try and rent out our home (even if we put a ridiculous amount) so it at least shows we did not have the intention to "buy & bail" ... but will that than also change it from being considered our primary home? Also, since we didn't lie on our loan application ... why do we need to rent it instead of just walking away?

Thanks for any input on this?

[AZChick]

I don't have an answer for exactly, but maybe you could consider staying in the current home until it goes into foreclosure? The way I understand it you can only claim one primary home at a time, also for the purposes of taxes, I'm thinking you have to have claimed the residence on your taxes in the past? I'm not sure...anyone know? I'm not sure I'd be willing to rent it out...

[dbackfan]

Bump....abouttowalkaway have you heard anything new on this question?

[dogatemy]

Originally Posted by abouttowalkaway

By bailing, are we changing the tax implications of our existing home's deficiency because it will no longer be considered our primary home at the time of foreclosure? Will be get 1099'd?

The Mortgage Forgiveness Debt Relief Act of 2007 defers to the states to decide if a loan is recourse or non-recourse.

Home Foreclosure and Debt Cancellation

Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.

If your house qualifies for non-recourse status then you also qualify for exemption from a 1099 as a result of debt-cancellation.

Now.. Arizona law says if the home is a 1 to 4 family dwelling on less than 2.5 acres of land then the home is exempt. The law does not say anything about the house being your primary residence. It only has to be a dwelling.

I am personally in the process of moving to a house I bought earlier in the year before my current home went into foreclosure. My attorney asked if my existing house was my primary residence so I assumed this mean it factored into my non-recourse status. Only after waiting months and chatting with him again did he clarify that your primary residence has no bearing on your recourse status.